Norwegian operator Statoil ASA (STO) has reached a production milestone of 1 million barrels of oil at its Leismer Demonstration Project (LDP) in northern Alberta, Canada.
Although oil sands require long-term investments, Statoil has the capability to carry out development in different stages. In 2007, Statoil entered Kai Kos Dehseh (KKD) through the acquisition of North American Oil Sands Corporation, which involves four leases –– Corner, Hangingstone, Thornberry and Leismer.
The company also enjoys the operatorship of KKD leases in the Athabasca region with 60% interest in the project, while its co-partner PTT Exploration and Production of Thailand holds a 40% stake.
Leismer, representing the first phase of the KKD steam assisted gravity drainage (SAGD) project, received its first oil in January and is expected to reach its highest capacity of 18,800 barrels per day within 24 months. The next phase comprises Corner, which received approval from the Alberta Energy Resources Conservation Board, and is scheduled to commence production by 2015 or the succeeding year. Corner is expected to have a 40,000 barrel per day facility.
Statoil is a major international integrated oil and gas firm, with operations in all major hydrocarbon-producing regions of the world. As of year-end 2010, the company had approximately 5.33 billion oil-equivalent barrels in proved reserves. The project also enhances the company’s volume growth prospects going forward.
Recently, Statoil also received approval from the Norwegian Ministry of Petroleum and Energy for the development of its Visund South oil field in the northern part of the North Sea. Production at Visund is slated to commence production in the third quarter of 2012, with a subsea template already underway.
We believe that Statoil is well positioned to sustain its steady production growth for the next few years on the back of its large resource base at the Norwegian Continental Shelf. However, Statoil’s weak reserve replacement ratio is expected to weigh on the stock. Despite a number of major acquisitions, Statoil has not been able to meaningfully improve its reserve-replacement performance. The company’s reserve replacement was 87% in 2010. Although the company stated that it will increase its resources base by 30%, we believe this is a long-term story.
We maintain our long-term Neutral recommendation for the company, which competes with BP plc (BP), Total SA (TOT) and Royal Dutch Shell plc (RDS.A). Statoil currently retains a Zacks #3 Rank, which translates to a short-term Hold rating.
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